Notes receivable are formal IOUs — written promises from another party to pay your company a specific amount of money by a certain date, usually with interest. Unlike accounts receivable (informal credit), notes receivable are backed by a signed promissory note.
For example, if you lend a supplier $50,000 and they sign a note promising to repay it in 6 months with 5% interest that note is your notes receivable. It is a formal, legally enforceable document.
Notes receivable appear as assets on the balance sheet. Short-term notes (due within a year) are current assets; long-term notes are non-current assets.